Asia Pulp and Paper (APP), the pulp and paper giant behind the illegal timber scandal we exposed last month has lost one of its largest international investors. In March we released evidence from a year-long investigation showing how illegal ramin was regularly identified at APP’s main pulpmill in Indonesia, Indah Kiat Perawang. Eleven companies were named at the time as having links to APP and most, including Danone, Xerox and Mondi have acted to suspend any contracts with the APP.
This week Skagen funds, from Norway, confirmed it has sold of its shares in a publicly listed part of APP. The investor wrote that ‘Indah Kiat was no longer part of the SKAGEN Kon-Tiki-portfolio as at the end of March 2012. We sold our position based on a review of the holding in light of SKAGEN´s investment philosophy, ethical guidelines and our aim of providing our unit holders with the best possible risk adjusted return.’
We have been informed that the Norwegian Pension fund, another Indah Kiat investor, has also sold its holdings.
This news will no doubt set off more alarm bells at APP. The company has been shedding customers over the last few months and it’s toxic reputation is once again spreading into the finance sector. It’s a sector where APP has a long and far from illustrious history. Earlier this year a well known American investor, Mark Mobius, declared in a newspaper article that APP was the worst investment he had ever made:
“WORST INVESTMENT: An Indonesian company called Asia Pulp and Paper. We probably lost about 25% of what we put in. The family who controlled the company basically took money out and put it into a Cook Island bank that had the same name as a legitimate bank.”
Named one of the top 10 money managers of the 20th Century in 1999 by the Carson Group, and one of the “Top 100 Most Powerful and Influential People” by Asiamoney Magazine in 2006, Mobius has over 38 years of experience in the investment sector and is currently Executive Chairman of Templeton Emerging Markets Group.
He isn’t alone in questioning the financial credentials of APP. The former head of HSBC equity research for Southeast Asia recently had this to say about APP/Sinar Mas forestry’s efforts to secure investments in their operations:
“I’ve been told the group has reformed with the founder now frail and his sons each taking over different parts of the business. Despite this, I would continue to stay clear given the group’s history and poor reputation.”
The history that McGaughey is referring to includes APP’s spectacular default on $US14 billion debt in the early 2000s, leaving a trail of scarred investors in its wake. APP’s restructured debts in 2009 amounted to at least $US4.2 billion. Detailed studies have concluded that APP’s ultimate owners in fact profit from this cycle of debt entrenchment and financial expropriation.
With Skagen Funds having withdrawn from Indah Kiat the next largest overseas investor is Mackenzie Financial Investments, from Canada. Greenpeace Canada is campaigning to get Mackenzie to follow Skagen’s lead through disinvesting until APP reforms its practices.